1972 (12) TMI 12 - HC - Income Tax

Petitioners made a voluntary disclosure of income under section 68 of the Finance Act 1965. The tax payable on The income so voluntarily disclosed amounted to Rs. 15, 55, 500. The said tax was due to be paid on or before November 30 1965 under the said section. However the tax was not paid before the said date. Subsequently the petitioners offered to pay the said tax but the Commissioner of Income-tax declined to receive the same on the ground that the time for payment was long over - When assessee does not pay taxes with in the due date but if the sale after coming into force of Finance (No. 2) Act 1967 whether interest can be levied for the period prior to 1/4/1967

Summary

Issues Involved:
1. Validity of the levy of interest on unpaid tax for the period before April 1, 1967.
2. Interpretation and application of Section 46 of the Finance (No. 2) Act, 1967.
3. Applicability of Section 220(2) of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of the Levy of Interest on Unpaid Tax for the Period Before April 1, 1967:
The petitioners contended that Section 46 of the Finance (No. 2) Act, 1967, which came into force on April 1, 1967, cannot be applied retrospectively to levy interest on unpaid tax for the period before that date. They argued that the tax on voluntarily disclosed income under Section 68 of the Finance Act, 1965, became payable only by virtue of Section 46, and therefore, interest should be calculated from April 1, 1967, onwards. They further contended that without Section 46, the tax would have been included in regular assessment proceedings, and interest would only be reckoned from the date of the notice of demand under Section 156 of the Income-tax Act.

2. Interpretation and Application of Section 46 of the Finance (No. 2) Act, 1967:
The court rejected the petitioners' contention, stating that Section 46 clearly creates a legal fiction that the unpaid tax on voluntarily disclosed income is deemed to be tax due from the declarant as of the date following the expiry of the six-month period specified in Section 68 of the Finance Act, 1965. This fiction implies that the tax is treated as due from November 30, 1965, and the provisions of Chapter XV and Chapter XVII-D of the Income-tax Act, including Section 220(2), apply accordingly. The court emphasized that the legislature's intention was to ensure that unpaid tax on voluntarily disclosed income is recoverable as if it were tax due under a notice of demand issued under Section 156, and interest is chargeable from the date of default, not from April 1, 1967.

3. Applicability of Section 220(2) of the Income-tax Act, 1961:
The court held that Section 220(2) of the Income-tax Act, which deals with the mode of collection, automatically applies to the tax due on voluntarily disclosed income under Section 68 of the Finance Act, 1965, as deemed by Section 46 of the Finance (No. 2) Act, 1967. Section 220(2) provides that if the tax specified in the demand notice is not paid within the stipulated period, the assessee is liable to pay simple interest from the date of default. The court dismissed the argument that Section 220(2) is only applicable at the recovery stage, affirming that it creates a substantive liability to pay interest when the assessee is in default.

Conclusion:
The court concluded that Section 46 of the Finance (No. 2) Act, 1967, operates prospectively but applies to tax amounts due before its enactment, and the fiction created by Section 46 ensures that interest is chargeable from the date of default as per Section 220(2) of the Income-tax Act. The writ petition was dismissed with costs, affirming the levy of interest on the unpaid tax for the period before April 1, 1967.